61) Knowing the net cost of inventory allows a business to determine the actual cost of the merchandise
purchased.
62) The net cost of inventory purchased equals the purchase cost less purchase returns and allowances
less purchase discounts.
63) Precision Musical Instruments, merchandisers of musical instruments, has provided the following
details:
Mar. 5
Inventory purchased on account
$800,000
Mar. 8
Freight in
30,000
Mar. 13
Purchase returns
60,000
Mar. 14
Allowances by vendor
10,000
Mar. 20
Payment made to vendor for purchases on March 5
?
Credit terms are: 4/20, n/45, FOB shipping point. Calculate the net cost of inventory purchased assuming
that there are no other inventory-related transactions during the month. Assume that the perpetual
inventory system is used.
A) $790,000
B) $729,600
C) $730,000
D) $730,800
64) The net cost of merchandise inventory purchased ________.
A) includes freight out
B) excludes freight in
C) excludes purchase allowances
D) represents the actual cost of merchandise purchased
65) ABC Electrical Supply Company purchased $560,000 of inventory. Goods of $35,000 were returned.
ABC received an early discount of $55,000 and paid freight in of $15,000 and freight out of $20,000.
Compute the net cost of inventory purchased. Label your work and show all computations.
1) An amount that a business earns from selling merchandise inventory is known as sales revenue or
sales.
2) Under the perpetual inventory system, two journal entries are used to record the sale of merchandise.
One entry records the Sales Revenue and another entry records the Cost of Goods Sold.
3) In a perpetual inventory system, the Cost of Goods Sold account is debited at the time of each sale.
4) When a perpetual inventory system is used, at the time of each sale an entry to record an expense and
an increase in Merchandise Inventory must be made.
5) Cost of Goods Sold is based on the company‘s cost, not the retail price.
6) When a company that uses the perpetual inventory system sells goods for cash, the journal entry to
record cost of goods sold is:
A)
Cost of Goods Sold
XX
Sales
XX
B) No journal entry is required.
C)
Cost of Goods Sold
XX
Merchandise Inventory
XX
D)
Sales
XX
Merchandise Inventory
XX
7) Regarding the Cost of Goods Sold account, which of the following statements is incorrect?
A) In a perpetual inventory system, the Cost of Goods Sold account keeps a current balance throughout
the period.
B) Cost of Goods sold is a contra revenue account.
C) Cost of Goods Sold is based on the company‘s cost, not the retail price.
D) Cost of Goods Sold represents the cost of inventory that has been sold to customers.
8) Journalize the following transaction for a merchandiser that uses the perpetual inventory system.
Sold goods for cash, $1,200 (cost $750). Omit explanations.
9) When a sale is made on account, Accounts Receivable is debited.
10) A company sold merchandise with a cost of $213 for $440 on account. The seller uses the perpetual
inventory system. The entry to record the cost of merchandise sold would include ________.
A) a debit to Sales Revenue and a credit to Cash for $440
B) a debit to Cash and a credit to Sales Revenue for $440
C) a debit to Cost of Goods Sold and a credit to Merchandise Inventory for $213
D) a debit to Merchandise Inventory for $213 and a credit to Cost of Goods Sold for $213
11) Journalize the following transaction for a merchandiser that uses the perpetual inventory system.
Sold goods to A. Pitt, on account, $2,500 (cost, $1,750). Omit explanations.
12) A reduction in the amount of revenue earned on sales for early payment is known as a sales discount.
13) Sales are recorded at the amount of the sale less any sales discounts.
14) If a customer does not pay within the discount period, the seller records the discount lost as in
increase in Sales Revenue.
15) A merchandiser sold goods on account to Customer A for $8,000 with terms of 2/10, n/30. If the
payment is received after the discount period, Accounts Receivable is decreased by $8,000.
16) The Sales Discounts Forfeited account ________.
A) is a contra Sales Revenue account
B) represents additional sales revenue
C) is a balance sheet account
D) represents the discount lost when a customer does not pay within the discount period
17) Landon Jewelers uses the perpetual inventory system. On April 2, Landon sold merchandise with a
cost of $2,500 for $7,000 to a customer on account with terms of 3/15, n/30. The journal entry to record the
cost of goods sold would be:
A)
Cost of Goods Sold
2,500
Accounts Receivable
2,500
B)
Sales Revenue
2,500
Cost of Goods Sold
2,500
C)
Cost of Goods Sold
2,500
Merchandise Inventory
2,500
D)
Merchandise Inventory
2,500
Cost of Goods Sold
2,500
18) Forever Jewelers uses the perpetual inventory system. On April 2, Forever sold merchandise with a
cost of $4,500 for $7,000 to a customer on account with terms of 2/15, n/30. Which of the following journal
entries correctly records the sales revenue?
A)
Sales Revenue
6,860
Accounts Receivable
6,860
B)
Sales Revenue
6,860
Cost of Goods Sold
6,860
C)
Accounts Receivable
4,500
Sales Revenue
4,500
D)
Accounts Receivable
6,860
Sales Revenue
6,860
19) On November 1, 2018, A & C Janitorial Supply sold merchandise on account with a cost of $4,200 for
$6,000 and payment terms of 3/10, n/30. The company uses a perpetual inventory system. Prepare the
journal entries for this transaction. Omit explanations.
Accounts Receivable
5,820
Sales Revenue
($6,000 – ($6,000 × .03))
5,820
Cost of Goods Sold
4,200
Merchandise Inventory
4,200
Diff: 2
LO: 5-3
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2: Sales Discounts
20) Journalize the following transactions for a merchandiser that uses the perpetual inventory system.
On January 8, inventory was sold for $7,000 on account. Credit terms were 2/15, n/30 (cost $5,500). On
January 17, cash was received in full settlement of the January 8 sale. Omit explanations.